Around the Net
Bubble Signs Are Back
- The New York Times, Wednesday, October 17, 2007 10:46 AM
Silicon Valley bubble talk is bubbling up once again. The action this time is taking place in the private sector, leaving the public somewhat safer; even so, a wider bubble burst could drive
inflation and send the economy into recession. The telltale signs are there: Internet companies with funny names, little revenue and few customers are commanding high prices. And once again, Internet
advertising is being seen as a bottomless trough of cash on which to base one's business model.
Worryingly, audience inflation--not revenue--is driving up prices for Web firms, the very
thing that brought about the first Internet bust. The social network Facebook is a good example; valuations of $15 billion are absurd. That's nearly half the market cap of Yahoo, a company earning 32
times Facebook's expected 2007 revenue.
In another example, Yahoo last year bought a one-fifth stake in Right Media, valuing the firm at $200 million; however, its valuation swelled to $850 million six months later when Yahoo purchased the rest. Revenue and network size had changed little, but Google paid $3.1 billion for DoubleClick, driving up ad network prices. As former Right Media chief technology officer Brian O'Kelley, said: "There is no way we quadrupled the value of the company in six months."
